Chapter 8: Aggregate Demand

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Aggregate Demand Aggregate Damand (AD) Curve Real Balance Effect Monetary Wealth

The quantity demanded of all goods and services (Real GDP) at different price levels, ceteris paribus. A curve that shows the quantity demanded of all goods and services (Real GDP) at different price levels ceteris paribus. The change in the purchasing power of dollar-denominated assets that results from a change in the price level. The value of a person's monetary assets. Wealth, as distinguished from monetary wealth, refers to the value of all assets owned, both monetary and non-monetary. In short, a person's wealth equals his or her monetary wealth (e.g., $1,000 cash) plus nonmonetary wealth (e.g., a car or a house). The quantity of goods and services that can be purchased with a unit of money. Purchasing power and the price level are inversely related: As the price level goes up (down), purchasing power goes down (up). The changes in household and business buying as the interest rate changes (in turn, a reflection of a change in the demand for or supply of credit brought on by price level changes). The change in foreign sector spending as the price level changes. The value of all assets owned, both monetary and non-monetary. The price of one currency in terms of another currency. An increase in the value of one currency relative to other currencies. A decrease in the value of one currency relative to other currencies. The average number of times a dollar is spent to buy final goods and services in a year. The quantity supplied of all goods and services (Real GDP) at different price levels, ceteris paribus. A curve that shows the quantity supplied of all goods and services (Real GDP) at different price levels, ceteris paribus. The condition in the economy when the quantity demanded of Real GDP equals the (short-run) quantity supplied of Real GDP. This condition is met where the aggregate demand curve intersects the short-run aggregate supply curve.

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Natural Real GDP

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The Real GDP that is produced at the natural unemployment rate. The Real GDP that is produced when the economy is in long-run equilibrium. The LRAS curve is a vertical line at the level of Natural Real GDP. It represents the output the economy produces when wages and prices have adjusted to their final equilibrium levels and when workers do not have any relevant misperceptions. The condition that exists in the economy when wages and prices have adjusted to their (final) equilibrium levels and when workers do not have any relevant misperceptions. Graphically, long-run equilibrium occurs at the intersection of the AD and LRAS curves. An economy can be in short-run equilibrium, long-run equilibrium, or disequilibrium.

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Long-Run Aggregate Supply (LRAS) Curve Long-Run Equilibrium

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Purchasing Power

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What are the three stages of an economy?

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Interest Rate Effect

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International Trade Effect Wealth Exchange Rate Appreciation Depreciation Velocity Aggregate Supply Short-Run Aggregate Supply (SRAS) Curve Short-Run Equilibrium

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